Currency changes keep UK prices steady

The weather so far this month has seen less rain but continuing blustery showers and high winds and the forecast going forward does not show much change, though surface water on the fields is gradually getting less.

Unfortunately the same story keeps re-appearing each week as commodity prices continue to fall and it is only the weakness of UK currency that has reduced the impact of falls in international futures prices on UK values. Similarly, as sterling weakened against the euro, in the US the dollar value dropped as well which was viewed as a big fillip to prices of many assets, including wheat and soft commodities.

Sterling weakened against both the euro, equating to €1.29 and the US dollar, after the Bank of England downgraded UK economic growth forecasts and voted unanimously to keep interest rates on hold at 0.5%.

Food prices have hit their lowest level in nearly seven years as prices last month dropped by 1.9% and prices now sit 37% below the high point reached in 2011. The fall was also fuelled by a retreat in cereal prices to a near nine-year low and is due to heavy stocks overhanging most markets and the economic outlook taking a turn for the worse.

The Liffe feed wheat futures for May, 2016, old crop fell by 90p last week and November, 2016, new crop wheat futures were down 65p to £118.10. In comparison with Paris futures, which fell by 4% and Chicago which fell by 3%, UK feed futures fell by just 2% as the devaluation of sterling reduced the impact of falls in international futures.

US weekly export sales hit their lowest level since the marketing year commenced on June 1 and US wheat ending stocks are already forecast at the highest in five years and sluggish export sales won’t help. The US struggled to secure demand in global wheat export markets this year due to sheer volumes of supplies available.

An increase in competitive supplies from Argentina have also made exporting challenging for the US. In comparison, Canadian wheat stocks have fallen by 19%, compared to December, 2014, and is down to an eight-year low. A weak Canadian dollar helped wheat exports so far this season which could see domestic supplies tightening.

World cereal production has been forecast up for 2015/16 by 3.9m tonnes to 2531m tonnes due to an increase in output in both Canada and Russia. World cereal usage has been lowered by 2.3m tonnes to 2527m tonnes which is 0.8% more than in 2014/15. Wheat usage is thought to increase by 2% driven by a rise in animal feed usage.

The global wheat stocks-to-use ratio comfortably stands at 30%, so any news of weather problems causing a shortage in the world, such as a sharp reduction of wheat plantings in Ukraine due to dry conditions, a fall in winter wheat sowing in the US, a likely 25% drop in crop output in South Africa and reduced plantings in India due to poor 2015 monsoon season, is not going to give cause for concern.

The Northern hemisphere crops remain vulnerable to a winter freeze due to a warm winter and lack of snow, however the EU is poised for a third successive bumper wheat crop. Forecast of a soft wheat harvest of 148m tonnes would be the second largest crop on record, narrowly behind last year’s 148.7m tonnes.

Total wheat used for the UK milling industry, starch and bioethanol so far this season is 8% down on the year at 3.28m tonnes. Home grown milled wheat is down 4% since last year at 2.8m tonnes, however imported wheat milled for the first half of this season has seen a greater decline of 26% and is now just under 0.5m tonnes.

The proportion of home grown wheat used by millers equates to 85% of the total and this proportionally higher use of home grown wheat could be due to better quality achieved this year.

The spread between ex-farm UK feed wheat and feed barley prices has decreased by £10.40 per tonne since the start of the season to £7.40 per tonne. In January, 2015, the gap between the two feed ingredients was £10.80 per tonne. As the gap between the two tightens, barley will become less attractive and lose favour to wheat, which has higher nutritional value and offers better value.

Some UK barley exports are taking place, mainly to Spain and Portugal and farmer selling has increased but there is a lack of domestic demand at present. Malting barley is also coming onto the market but there are few buyers.